Minnesota Unrelated Business Income Tax (UBIT)

Transcription

1 Updated final 1/30/18 Minnesota Unrelated Business Income Tax (UBIT) Instructions for 2017 Form M4NP and supporting schedules. Tax Information for Tax-Exempt Organizations Website For forms, tax information and to file and/or pay electronically, go to: Phone Forms Download forms and other tax information at We provide our publications in other formats upon request to persons with disabilities. Address Minnesota Revenue Mail Station 1257 St. Paul, MN Sales Tax Exempt Status or Sign up to receive tax-related updates by visiting our website at state.mn.us Contents General Information Before you File... 1 Filing Requirements... 1 Due Dates and Extensions... 1 Payment Options... 2 Amending Your Return... 2 Accounting Period... 2 Form M4NP Instructions Assembling Your Return... 4 Penalty and Interest Worksheet... 4 M4NPI Instructions... 5 M4NPA Instructions Before You File You Need a Minnesota Tax ID Your Minnesota Tax ID is the seven-digit number you re assigned when you register with the department. Your organization only needs one Minnesota Tax ID number and one federal employer ID number (FEIN) to use for all tax types (e.g., sales, withholding, lawful gambling, unrelated business income tax, etc.). You must include your Minnesota Tax ID on your return so that your tax filings and payments are properly recorded. If you do not have a Minnesota Tax ID, you can apply online at mn.us or call or Filing Requirements Any tax-exempt organization doing business in Minnesota that is required to file one of the federal tax returns listed below is also required to file a Minnesota Form M4NP and pay tax on federal taxable income assignable to Minnesota. Form 990-T Exempt organizations with unrelated business income and organizations liable for proxy tax on lobbying and political expenditures; Form 1120-C Farmers cooperatives, as defined in IRC section 521; Form 1120-H Homeowner associations; or Form 1120-POL Political organizations. You must attach to your Form M4NP a complete copy of your federal return, including all supporting schedules. However, copies of federal Form 990 and 990 EZ are not required to be filed with the Minnesota Department of Revenue. Software-Generated Forms If you use your own software, the information must be in the same format as our own forms and schedules. If it s not in the same format, the forms and schedules may be returned to you for correction. File Electronically File your return electronically on our website. Go to and log in. Follow the prompts to electronically file your unrelated business income tax return. Due Dates and Extensions When is the Return Due? All filers. The due date for filing Form M4NP and paying tax owed is the same as for your federal return (see below). The U.S. postmark date, or date recorded or marked by a designated delivery service, is considered the filing date (postage meter marks are not valid). When the due date falls on a Saturday, Sunday or legal holiday, returns postmarked on the next business day are considered timely. When a return is filed late, the date it is received at the department is treated as the date filed H filers and 1120-POL filers. File by the 15th day of the fourth month after the end of the tax year. 990-T filers. File by the 15th day of the fifth month after the end of the tax year C filers. File by the 15th day of the ninth month after the end of the tax year. Organizations with a short taxable year. Short-year returns are due by the 15th day of the third month following the month in which the short year ends. Extension of Time to File All organizations are granted an automatic seven-month extension to file Form M4NP. You re not required to submit a form to Minnesota to receive a filing extension. If you re filing under an extension, be sure to check the Filing Under an Extension box in the top part of Form M4NP. This is a filing extension only, not a payment extension. Any tax not paid in full by the regular due date is subject to penalties and interest (see Extension Payment on page 2). Continued 1

2 General Information (continued) Payments There are four types of payments for Unrelated Business Income Tax tax return, extension, estimated tax and amended return payments. You can pay electronically, by credit card or by check. (See Payment Options on this page.) Note: If you re currently paying electronically using the ACH credit method, continue to call your bank as usual. If you wish to make payments using the ACH credit method, instructions are available at Extension Payment Your tax is due by the regular due date, even if you re filing under an extension. Any tax not paid by the regular due date is subject to penalties and interest (see instructions for lines 20 and 21 on pages 3 and 4). If you re filing after the regular due date, make an extension payment by the regular due date to avoid penalties and interest (see Payment Options on this page). Estimated Payments If your estimated unrelated business income tax is more than $500, you must make quarterly payments based on the entire estimated amount (see Payment Options on this page). Payments are due the 15th day of the third, sixth, ninth and 12th months of the tax year. For additional information, see Estimated Tax Instructions for Unrelated Business Income Tax. Tax Return Payment If there is an amount due on line 26 of Form M4NP, you must make a tax return payment (see Payment Options on this page). There is no penalty if at least 90 percent of your tax liability is paid by the regular due date (see lines 20 and 21 on pages 3 and 4). Amended Return Payment If there is an amount due on line 26 of your amended return, you must make an amended return payment (see Payment Options above). Amending Your Return Use Form M4NP if you are amending a return for 2017 or later. Use form M4NPX for year 2016 or earlier. Check the Amended return box in the top part of the return. Payment Options If your tax liability for the last 12-month period ending June 30 is $10,000 or more, or if you re required to pay any Minnesota business tax electronically, you must pay all state taxes electronically. A 5 percent penalty will be assessed if you fail to do so when required. Pay Electronically Go to and log in, or Call to pay by phone. To be timely, you must complete your transaction and receive a confirmation number on or before the due date for that payment. You can cancel a payment up to one business day before the scheduled date, if needed. When paying electronically, you must use an account not associated with any foreign banks. If you re using the system for the first time and need a temporary password, call or Pay by Credit or Debit Card For a fee, you can use your credit or debit card to make a payment through Value Payment Systems, a national company that partners with federal, state and local governments to provide credit and debit card payment services. To do so: Go to paymntax.com; or Call IPAY-MN to pay by phone. The Department of Revenue does not have any financial agreement with Value Payment Systems and does not receive any of its fees. Pay by Check If you re not required to pay electronically and you choose to pay by check, you must send your check with a personalized payment voucher. Visit our website at state.mn.us and click on Make a Payment and then By check to create a voucher. Print and mail the voucher with a check made payable to Minnesota Revenue. Your check authorizes us to make a one-time electronic fund transfer from your account. You may not receive your cancelled check. Complete an amended return if your tax liability has changed due to a change in the Net Operating Loss calculation. You must report any change or correction made by the IRS to your federal return within 180 days of the final determination. If you agree with the changes, file an amended M4NP. If you do not agree, send us a letter explaining why the federal changes are incorrect or why they do not change your Minnesota tax. Include a complete copy of your amended federal return or correction notice. If you do not report the federal changes in the manner or time required, you re subject to a penalty equal to 10 percent of any additional tax due. If you amend your federal tax return, you must also file a copy with us within 180 days. Failing to report federal tax changes within 180 days increases the period of time during which we may make adjustments to your Minnesota return. Mail your amended M4NP, M4NPX, or letter explaining the changes to your federal income tax to: Minnesota Revenue, Mail Station 1257, St. Paul MN Do not send these with your current tax return. Accounting Period You must use the same accounting period for Minnesota as you use for reporting your net income under the IRC. If you change your federal accounting period, attach a copy of federal Form 1128, Application to Adopt, Change or Retain a Tax Year, to your short-period Minnesota return. 2

3 Form M4NP Complete Schedule M4NPI and any other applicable schedules before completing Form M4NP. You must include these schedules with your return. Completing Your Return If you re filing for a fiscal year, be sure to enter the beginning and ending dates of the year at the top of Form M4NP. If you re filing a short-taxable year return, you must include the short-year end date. Round amounts to whole dollars. Drop amounts less than 50 cents and increase amounts 50 cents or more to the next higher dollar. Amended Return If you re filing an amended return to report changes to your Minnesota liability, check the Amended return box near the top of your amended return (use Form M4NP for year 2017 and later; use Form M4NPX for year 2016 and earlier). If you amend your federal return, you must also file a copy with us within 180 days (see Amending Your Return on page 2.) Final Return If this is your final return, check the Final return box in the top part of the return and enter your close date. Attach an explanation and a copy of merger papers, dissolution date and distribution papers. NAICS Codes Enter the six-digit NAICS codes that best describe your business activities (enter at least one). If you file federal Form 990-T, use the same codes that are reported on that form. If you do not know your NAICS codes, go to html. Search the most recent NAICS list. Line Instructions Federal Taxable Income Before Minnesota Subtractions If you re filing federal Form: 990-T C H POL 19 Enter amount from line: Line 3 Federal Taxable Income or (Loss) after Subtractions Total subtractions (line 2 of Form M4NP) cannot be used to create or increase a loss on line 3. If line 1 is a gain and the subtractions reported on line 2 are less than line 1, subtract line 2 from line 1. Enter the result on line 3. If line 1 is a gain and the subtractions reported on line 2 are greater than line 1, enter zero on line 3. If line 1 is a (loss), enter the amount from line 1 on line 3. Line 8 Proxy Tax (990-T Filers Only) If you lobby Minnesota state and/or local government and pay proxy tax to the IRS, you re subject to Minnesota proxy tax on the amount attributable to Minnesota. Multiply 9.8 percent (0.098) by the amount attributable to Minnesota that is included in the amount subject to federal proxy tax. Enter the result on line 8. Line 12 Minnesota Nongame Wildlife Fund You can help preserve Minnesota s rare and endangered animals and plants by donating to this fund. Your donation will decrease your refund or increase your balance due. For more information about the fund, go to the Minnesota Department of Natural Resources website at Line 15 Amount Credited from Your 2016 Return If your 2016 return showed an overpayment that was to be credited to your 2016 estimated tax, enter that amount on line 15. Line Estimated Tax Payments Enter the total estimated tax payments made for the year. Line Extension Payment Enter any payment made by the regular due date of your return. Lines 20 and 21 Penalty and Interest Penalties are collected in addition to any additional charge for underpaying tax. Line 20 Penalties To determine the amount of penalties you owe, use the following penalty descriptions to complete the worksheet on page 4. Attach a copy of the worksheet to your return. Late payment. A penalty is due if you do not pay at least 90 percent of your total tax by the regular due date. The penalty is 6 percent of the unpaid tax on line 19. There is no penalty if at least 90 percent of your total tax is paid by the regular due date, and any remaining balance is paid by the extended due date. You must calculate interest, however, on the remaining balance. Other penalties. If you understate your tax by more than 10 percent or $10,000, whichever is more, the penalty is 20 percent of the underpayment. If you intentionally do not file a return to evade paying tax, or if you file a false or fraudulent return, the penalty is 50 percent of the tax due. If you re negligent or intentionally disregard the law or rules (but without intent to defraud), the penalty is 10 percent of any additional tax assessed. If you do not file a return within 30 days of a written demand from the department, a penalty of 5 percent of the tax, or $100, whichever is greater is added to the tax. Late filing. If you file after the extended due date and owe tax, you must pay an additional penalty for filing late. The late-filing penalty is 5 percent of the unpaid tax on line 19. Balance not paid. An additional penalty of 5 percent of the unpaid tax is due if the return is filed after the regular due date with a balance due, and that balance is not paid at the time of filing. Payment method. If you re required to pay electronically and do not, an additional 5 percent penalty applies to payments not made electronically, even if a paper check is sent on time. Understatement of tax. If you understate your tax by more than 10 percent or $10,000, whichever is more, the penalty is 20 percent of the underpayment. Intentional evasion of tax. If you intentionally do not file a return to evade paying tax, or if you file a false or fraudulent return, the penalty is 50 percent of the tax due. Negligent or intentional disregard. If you re negligent or intentionally disregard the law or rules (but without intent to defraud), the penalty is 10 percent of any additional tax assessed. Extended delinquency. If you do not file a return within 30 days of a written demand from the department, a penalty of 5 percent of the tax, or $100, whichever is greater is added to the tax. 3 Continued

4 Form M4NP (continued) You should also be aware of the following: It s a gross misdemeanor to knowingly not file a return or pay a tax when required. If you willfully attempt to evade or defeat a tax or tax law, the action becomes a felony. It s a felony to knowingly file a false or fraudulent return; or to knowingly help someone prepare, or advise someone on how to prepare, a false or fraudulent return. Line 21 Interest You must pay interest on the unpaid tax plus penalty from the regular due date until the total is paid. Complete the worksheet on this page to determine line 21. The interest rate for calendar year 2018 is 4 percent. Check our website to determine the interest rate for other years. Line 22 Additional Charge for Underpayment of Estimated Tax If you did not pay the correct amount of estimated tax by the due dates, you may have to pay an additional charge for underpayment of estimated tax. If your 2017 tax on Form M4NP, line 11, less any refundable credits on line 14, is more than $500, use Schedule M15NP, Additional Charge for Underpayment of Estimated Tax, to figure the additional charge or to show that you qualify for an exception. Attach Schedule M15NP to your return. Line 29 If you want your refund to be directly deposited into your checking or savings account, enter the routing and account numbers. The routing number must have nine digits. You can find your bank s routing number and account number on the bottom of your check. The account number may contain up to 17 digits (both numbers and letters). Enter the number and leave out any hyphens, spaces and symbols. If the routing or account number is incorrect or is not accepted by your financial institution, your refund will be sent to you in the form of a paper check. By completing the banking information on line 29, you re authorizing the department and your financial institution to initiate electronic credit entries, and if necessary, debit entries and adjustments for any credits made in error. Signatures The return must be signed by a person designated by the organization. Include the person s title and daytime phone. Preparer information. If you pay someone to prepare your return, the preparer must sign the return, and also fill in his or her PTIN and daytime phone number. To authorize the department to discuss the return with the preparer, check the authorization box. This authorization remains in effect until you notify the department in writing (either by mail or fax) that the authorization is revoked. correspondence. If the department has questions regarding your return and you want to receive correspondence by , or have your preparer receive it by , enter the address and check if it belongs to an employee of the organization or the preparer. By providing an address, you re authorizing the department to correspond with you or the designated person over the internet, and you understand that the organization s nonpublic tax data may be transmitted over the internet. You also accept the risk that the data may be accessed by someone other than the intended recipient. The department is not liable for any damages the organization may incur as a result of an interception. Worksheet to Determine Lines 20 and 21 If you re paying your tax after the regular due date, you must include appropriate penalties and interest with your payment. Complete the worksheet below using the instructions for lines 20 and 21 beginning on page 3. Attach a copy of this worksheet to your return. 1 Tax not paid by the regular filing due date... 2 Late payment penalty*. Multiply step 1 by 6% (.06)... 3 Late filing penalty. If you re filing your return after the extended due date, multiply step 1 by 5% (.05)... 4 Extended delinquency. If your return is filed after the regular due date with a balance due, multiply step 1 by 5% (.05), or $100, whichever is greater... 5 Electronic payment. If you re required to pay electronically and you do not, multiply your payment amount by 5% (.05)... 6 Penalties. Add steps 2 through 5, and enter the result here and on Form M4NP, line Number of days the tax is late**... 8 Enter the applicable interest rate. For 2017, the rate is 4% (.04)... 9 Multiply step 7 by step Divide step 9 by 365 (carry to five decimal places)... Assembling Your Paper Return and Attachments If you re filing a paper return, organize your Form M4NP and schedules (when required) in the following order: 1 Form M4NP, including page 2 if it is not printed on the back of your Form M4NP, 2 Schedules M4NPI, M4NPA and M15NP according to the attachment numbers in the top right corners. 3 Schedule ETP. Attach any additional information requested and a complete copy of your 2017 federal return filed with the IRS, including the Net Operting Loss (NOL) and all supporting schedules. Your Minnesota tax return will not be considered complete unless all required federal returns are attached. 11 Interest. Multiply the sum of steps 1 and 6 by step 10. Enter the result here and on Form M4NP, line * If you paid at least 90 percent of your total tax by the regular due date and any remaining balance by the extended due date, you will not be charged a late payment penalty. ** If the days fall in more than one calendar year, determine steps 7 11 separately for each year. 4

5 Schedule M4NPI Subtractions Include any subtractions you may have received as a partner in a partnership (include Schedule KPC with your return). Line 1 a. Advertising Enter revenues from a newspaper published by a section 501(c)(4) organization. b. Lawful Gambling Expenditures Certain lawful gambling expenditures are not allowed on the federal return. Enter the amount of expenditures noted in Minnesota Statutes 349 that are not claimed on your federal return. c. Other Subtractions If other subtractions enacted into law apply to you for the tax year, enter the amount on line 1c. Be sure to provide an explanation on the space provided. Deductions Include any deductions you may have received as a partner in a partnership (include Schedule KPC with your return). Line 2 a. Other Deductions If other deductions enacted into law apply to you for the tax year, enter the amount on line 2a. Be sure to provide an explanation on the space provided. Credits Against Tax Credits against tax are nonrefundable and are limited to your tax liability. Include any credits you may have received as a partner in a partnership (include Schedule KPC with your return). Line 3 a. Employer Transit Pass Credit If you purchase transit passes to sell or give to your employees, you may be eligible for this credit. The credit is 30 percent of the difference between the price you paid for the passes and the price charged employees. Complete and attach Schedule ETP, Employer Transit Pass Credit. b. SEED Capital Investment Credit If you invest in a qualified business in Breckenridge, Dilworth, East Grand Forks, Moorhead or Ortonville, and the business has been certified by the Minnesota Department of Employment and Economic Development as qualifying for the SEED capital investment program, you may qualify for this credit. The credit is equal to 45 percent of the amount invested in a qualified business, up to $112,500 per year. The credit may be carried forward for up to four years. c. Other Credits Against Tax If other credits against tax enacted into law apply to you for the tax year, enter the amount on line 3c. Be sure to provide an explanation on the space provided. Refundable Credits Include any credits you may have received as a partner in a partnership (include Schedule KPC with your return). Line 4 a. Greater Minnesota Internship Credit For each intern hired through the Greater Minnesota Internship Program make the following calculation: 1 Wages paid to the intern during the tax year 1 2 Multiply line 1 by Enter the amount on line 2 or $2,000, whichever is less 3 Add the amounts for all interns and enter the total on Form M4NPI, line 4a. Attach to your return a copy of the Greater Minnesota Internship Tax Credit 2017 Internship Provider/Employer Agreement for each intern and a copy of the annual report regarding student interns/employees that you re required to file with the Minnesota Office of Higher Education. b. Historic Structure Rehabilitation Credit To qualify for this credit, you must be eligible for the federal Historic Rehabilitation Credit for improving a certified historic structure located in Minnesota and have your application approved by the State Historic Preservation Office (SHPO) of the Minnesota Historical Society. For details, go to On line 4b, enter the NPS project number and credit amount from the credit certificate you received from SHPO. Include the credit certificate when you file your return. c. Other Refundable Credits If other refundable credits enacted into law apply to you for the tax year, enter the amount on line 4c. Be sure to provide an explanation on the space provided. 5

6 Schedule M4NPA Complete Schedule M4NPA if you conduct business both in and outside Minnesota. Single-Sales Factor Apportionment After a number of years of increasing the weight of the sales factor and decreasing the weights of the property and payroll factors in the three-factor apportionment formula, Minnesota has now fully transitioned to the single-sales factor apportionment method. Financial institutions, read Apportionment for Financial Institutions on page 7. Nonapportionable Income Line 2 Nonbusiness income is income that cannot be apportioned because of the United States Constitution. Nonbusiness income is allocated by assignment based on the type of property that gives rise to the income. Nonapportionable income must be reduced by the expenses incurred to generate the nonapportionable income. Frequently used assignment rules are: Income/gains from tangible property not employed in the trade or business is allocated to the state in which the property is located. To determine the gain or loss on the sale of a partnership s interest not employed in the trade or business, divide the original cost of the partnership s tangible property in Minnesota by the original cost of all tangible property of the partnership. (Tangible property includes real estate, inventory and equipment.) If you do not have these numbers, contact the partnership. If more than 50 percent of the partnership s assets are intangibles, the gain/ loss is allocated to Minnesota using the partnership s prior year s sales factor. Other assignment rules are in M.S , subd. 2. Income not assigned in any particular manner is allocated by assignment to the taxpayer s state of domicile. Business income is all income except nonbusiness income. Business income is subject to apportionment. Sales Line 6 Sales or Receipts Enter your sales in Minnesota (see Determining Minnesota Sales below) for the tax year in column A and your total sales in column B. Determining Minnesota Sales Real Property Sales, rents, royalties and other income from real property are attributed to the state in which the property is located. Tangible Personal Property Sales of tangible personal property are attributed to Minnesota if the property is received by the purchaser within Minnesota and the taxpayer is taxed in this state, regardless of the f.o.b. point, other conditions of sale, or the ultimate destination of the property. Tangible personal property delivered to a common or contract carrier or foreign vessel for delivery to a purchaser in another state or nation is a sale in that state or nation regardless of the f.o.b. point or other conditions of sale. Property is received by a purchaser in Minnesota if the recipient is located in Minnesota, even if the property is ordered from outside Minnesota. Sales of tobacco products, beer, wine and other alcoholic beverages to someone licensed to resell the products only within the state of ultimate destination is a sale in the destination state. Receipts from leasing or renting tangible personal property, including finance leases and true leases, are attributed to the state in which the property is located. Receipts from the lease or rental of moving property are attributed to Minnesota to the extent the moving property is used in Minnesota. The extent of use is determined as follows: A motor vehicle is used wholly in the state in which it is registered. Receipts from rolling stock are assigned to Minnesota in the ratio of miles traveled in Minnesota to total miles traveled. Receipts from aircraft are assigned to Minnesota in the ratio of landings in Minnesota to total landings. Receipts from vessels, mobile equipment and other mobile property are assigned to Minnesota in the ratio of days the property is in Minnesota to the total days of the tax year. Intangible Property Sales of intangible property are attributed to the state in which the property is used by the purchaser. Royalties, fees and similar income received for the use of, or privilege of using, intangible property (such as patents, copyrights, trade names, franchises or similar items) are attributed to the state in which the property is used by the purchaser. Intangible property is attributed to Minnesota if the purchaser uses the property, or rights in the property, to conduct business within this state, regardless of the location of the purchaser s customers. If the property is used in more than one state, then the sales or royalties must be apportioned to Minnesota pro rata based on the portion of use within this state. If you cannot get the portion of use in Minnesota, then exclude the sales or royalties from both the numerator and the denominator of the sales factor. Services Receipts from the performance of services are attributed to the state in which the services are received. Receipts from services provided to an organization may only be attributed to a state in which it has a fixed place of doing business. If you cannot determine where the service was received, or if it was received in a state where the organization doesn t have a fixed place of business, use the location of the office of the customer from which the service was ordered. If you cannot determine the ordering office, use the office location to which the service was billed. Line 7 Unitary businesses: Column A must be the total of all business activities attributable to Minnesota. Column B must include the total values of all business activities conducted within and outside of Minnesota. A unitary business exists whenever there is a unity if ownership, operation and use. Unity is also presumed when business activities or operations are of mutual benefit to, dependent upon or contributory to one another, either individually or as a group. A business is unitary if there is functional integration, centralized management and economies of scale (M.S , subd. 4). Continued 6

7 Schedule M4NPA (continued) Unitary Businesses Only Sales of Non-filing Entities All sales of a unitary business attributable to Minnesota must be included on the group s combined return. On line 7 of the Form M4NPA, enter all sales of the unitary business attributable to Minnesota that are not included on line 6. (M.S , subd. 4[h]) Line 11 Minnesota Nonapportionable Income Enter the income included on line 2 of Schedule M4NPA that is assigned to Minnesota. Line 9 Minnesota Apportionment Factor Divide column 8a by column 8b and carry the result to six decimal places. Enter the result on line 9. This is your sales factor. The sales factor includes all sales, rents, gross earnings or receipts received in the ordinary course of your business, except: interest dividends sales of capital assets under IRC section 1221 sales of property used in the business, except sales of leased property that is regularly sold as well as leased sales of stock or sales of debt instruments under IRC section 1275(a)(1). Apportionment for Financial Institutions In general, a financial institution is any national or state bank, bank holding company, savings and loan, or any other corporation that does business that a bank or other financial institution would be authorized to do. Financial institutions complete Form M4NPA the same way that other nonprofit organizations would, with the exception of sales. Line 6 Sales or Receipts Factor Financial institutions use a receipts factor instead of a sales factor. Include the gross income from activities in the ordinary course of business, including income from securities and money market instruments. The following is considered Minnesota income: interest income from loans secured by real or tangible personal property located in Minnesota; interest on consumer loans not secured by real or tangible personal property if the borrower is a Minnesota resident; interest on commercial loans not secured by real or tangible personal property if the proceeds are applied in Minnesota; merchant discount income if the merchant is located in Minnesota; receipts from travelers checks if purchased in Minnesota; receipts from credit cards if regularly billed in Minnesota; receipts for regulated financial institutions from securities, based on the ratio of total deposits from Minnesota to total deposits in and outside Minnesota; receipts for nonregulated financial institutions from securities, based on the ratio of gross business income from Minnesota to total gross business income; receipts from secondary market assets treated in the same way as securities; receipts from the performance of services received in Minnesota. 7